Practice Quiz 3: Specialization and Exchange

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1.	Nations specialize and engage in trade to: A. protect domestic consumers and producers. B. increase output and income. C. improve transportation. D. promote exports.

2.

Answer the following question(s) on the basis of the data given for two regions, East and West, of a hypothetical world. The nations have the production possibilities for units of food and clothing given below. East production possibilities West production possibilities Product A B C D Food 24 16 8 0 Clothing 0 4 8 12 Product A B C D Food 45 30 15 0 Clothing 0 5 10 15 R-1 REF 6-42 (REF06036) Refer to the above data. In East, the comparative cost of 1 unit of: A. food is 4 units of clothing. B. food is .5 units of clothing. C. clothing is 4 units of food. D. clothing is .5 units of food.

3.

Answer the following question(s) on the basis of the data given for two regions, East and West, of a hypothetical world. The nations have the production possibilities for units of food and clothing given below. East production possibilities West production possibilities Product A B C D Food 24 16 8 0 Clothing 0 4 8 12 Product A B C D Food 45 30 15 0 Clothing 0 5 10 15 R-1 REF 6-42 (REF06036) Refer to the above data. Which of the following is true? A. For West, the cost of 5 units of clothing is 10 units of food. B. For West, the cost of 15 units of food is 5 units of clothing. C. For East, the cost of 8 units of food is 8 units of clothing. D. For East, the cost of 4 units of clothing is 6 units of food.

4.

Answer the following question(s) on the basis of the data given for two regions, East and West, of a hypothetical world. The nations have the production possibilities for units of food and clothing given below. East production possibilities West production possibilities Product A B C D Food 24 16 8 0 Clothing 0 4 8 12 Product A B C D Food 45 30 15 0 Clothing 0 5 10 15 R-1 REF 6-42 (REF06036) Refer to the above data. Which of the following statements about the two nations is correct based on the principle of comparative advantage? A. East should specialize in the production of food. B. West has a comparative advantage in the production of clothing. C. West has a comparative advantage in the production of food. D. West should specialize in the production of clothing.

5.

Answer the following question(s) on the basis of the data given for two regions, East and West, of a hypothetical world. The nations have the production possibilities for units of food and clothing given below. East production possibilities West production possibilities Product A B C D Food 24 16 8 0 Clothing 0 4 8 12 Product A B C D Food 45 30 15 0 Clothing 0 5 10 15 R-1 REF 6-42 (REF06036) Refer to the above data. The terms of trade will be: A. greater than 4 units of food for 1 unit of clothing. B. between 5 units of food for 1 unit of clothing and 4 units of food for 1 unit of clothing. C. between 3 units of food for 1 unit of clothing and 2 units of food for 1 unit of clothing. D. less than 2 units of food for 1 unit of clothing.

6.

Answer the following question(s) on the basis of the data given for two regions, East and West, of a hypothetical world. The nations have the production possibilities for units of food and clothing given below. East production possibilities West production possibilities Product A B C D Food 24 16 8 0 Clothing 0 4 8 12 Product A B C D Food 45 30 15 0 Clothing 0 5 10 15 R-1 REF 6-42 (REF06036) Refer to the above data. Assume that East had specialized in the production of food at alternative A and that West had produced both products at alternative C. If the nations now specialized based on comparative advantage, the gains from specialization and trade are: A. 2 units of food and 4 units of clothing. B. 2 units of clothing and 4 units of food. C. 6 units of food and 2 units of clothing. D. 6 units of clothing and 2 units of food.

7.	Trade between individuals and between nations leads to: A. greater self-sufficiency. B. higher product prices. C. lower living standards. D. increased specialization.

8.	Consider two countries which trade with each other. The degree of specialization according to their respective comparative advantages will be greater if the countries face: A. constant costs. B. high tariffs. C. low unemployment rates. D. increasing costs.

9.

According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where: A. domestic opportunity costs are lowest. B. inflation rates are low. C. the balance of trade is in a surplus position. D. the exchange rate is falling.

10.	R-2 REF 37-46 (F37043) The data embodied in the above diagrams suggest that: A. Italy should export X and Greece should export Y. B. Greece should export X and Italy should export Y. C. production in both countries is subject to increasing costs. D. Italy should import both X and Y from Greece.